Compensating Balances

question 39

Multiple Choice

Compensating balances

• A) are a particular form of collateral commonly required on commercial loans.
• B) are a required minimum amount of funds that a borrower (i.e., a firm receiving a loan) must keep in a checking account at the bank.
• C) allow banks to monitor firms' check payment practices, which can yield information about their borrowers' financial conditions.
• D) are all of the above.

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Definitions:

Natural Exposure

Contact with natural environmental factors, such as sunlight or pathogens, without human intervention.

Artificially Induced

A condition or state brought about by external intervention rather than occurring naturally.

Naturally Induced

Phenomena or processes initiated or caused by natural factors without human intervention.

Immunization

The process by which a person's immune system is fortified against an agent (typically a microorganism or a toxin), often through vaccination.